The main regulatory documents in the field of regulation of foreign investment are the Constitution of the Federative Republic of Brazil of 10/05/1988, laws No. 3141 of September 3, 1962 and No. 4390 of August 29, 1964. Foreign capital invested in Brazil uses the national regime, i.e. has the same legal status as national capital.
There are areas of economic activity in which the participation of foreign capital is limited by law: exploration, production and refining of oil; commercial air transport; coastal cruising; media, etc. Foreign investments must be registered with the Central Bank, after which the investor receives a registration certificate giving the right to transfer profits abroad, reinvest profits, repatriate capital.
Foreign direct investment is made by acquiring shares or shares in a local company or establishing a new company. Other forms of direct investment can be foreign currency investments, as well as the importation of machinery and equipment, or the provision of trademarks and patents as a payment for the share of participation of foreign capital in a joint venture.
Portfolio foreign investment is governed by orders No. 1289 of 08/20/1987 and No. 1048 of 07/31/1991, according to which foreign capital on Brazilian stock exchanges uses the national regime.
The organizational and legal forms of the joint venture with the participation of foreign capital are limited liability companies and joint-stock companies. It is also permitted to open branches of foreign companies, for which permission of the federal government and registration at the location of the branch is required.
Restrictions on the transfer of profits and the repatriation of foreign capital are not subject to the availability of a certificate of registration of foreign investments in the Central Bank and payment of 25%.
Creating a company in Brazil
In order to establish a company in Brazil (open a representative office), a foreign investor is obliged to appoint a trustee from among the citizens of Brazil who will be empowered to act on his (investor’s) behalf and in his interests in all administrative and legal procedures.
Foreign citizens and organizations must obtain registration with Receita Federal (Federal Tax Service) to obtain a tax number of a legal entity (CNPJ) or an individual taxpayer registration number (CPF).
Local regulations or constituent documents of a foreign company and the powers of representatives must be legalized at the nearest Brazilian consulate in a foreign country before testifying to the correctness of the translation.
The form in which the statutory fund of Brazilian companies will be formed (goods, cash and rights) is defined in local acts or constituent documents.
After certifying the accuracy of the translation, local acts or constituent documents must be registered with the Registro de Comércio (the local Register of Brazilian Commercial Subjects, and a lawyer / lawyer must verify and endorse local regulations or constituent documents).
After filling out all the documents of the company, investors are required to register foreign capital (cash, rights, goods, equipment) in the Information System of the Central Bank of Brazil (SISBACEN) using the RDE-IED computer program (electronic registration). Registration of capital in the RDE-IED system is also necessary to ensure profit, use of profit for new investments, repatriation of capital in the future.
Prior to the commencement of these actions, the company must be registered with the appropriate department of the State Revenue Service, the Municipal Revenue Service and the Social Security Agency (INSS).
The most common legal forms of legal entities that foreign investors prefer to do business in Brazil are Sociedade Anônima (a joint-stock company’s analogy) and Sociedade Limitada (a limited-liability company’s analogy). Sociedade Limitada is governed by the Brazilian Civil Code, the organization operates on the basis of constituent documents and the Memorandum of Association. Responsibility of members of the company is limited. Responsibility of the company’s participants is limited to the size of shares / investments, provided that the participant contributes a share in the statutory fund. The authorized capital is divided into parts, expressed in monetary form, in the form of loans, rights or assets that the shareholder has contributed to the authorized capital of the organization. The minimum size of the authorized capital for this type of legal entity is not established. The minimum required number of participants is 2 (Brazilians or foreigners).
The activities of Sociedade Anônima (similar to a joint-stock company) are regulated by Federal Law No. 6404 of 1976, the organization operates on the basis of its local regulations. According to the legal definition, Sociedade Anônima is a commercial organization created for the purpose of making a profit, which is distributed among the shareholders. Its (organization) capital consists of the value of all issued shares and shares issued into circulation. The minimum required number of shareholders is two (Brazilians or foreigners). As a rule, the minimum size of the statutory fund for this type of legal entity is not established, with the exception of certain types of activities of the organization, such as financial services firms, banks, etc.
The Brazilian tax system has three levels of taxation: federal, state and municipal.
The amount of taxation varies depending on the type of activity of the company and its location (city and state). Municipal and regional authorities have the authority to grant companies tax incentives.
Profits / dividends received by Brazilian companies from partners who are or have a residence abroad, are not subject to income tax since 1996. Capital gains are taxed, as well as income, at a rate of 15 percent.
Services provided by foreigners, residents or persons who have permanent residence abroad for individuals or legal entities in Brazil are subject to income tax at a rate of 15% (25% for the purchase of software and technology or for companies registered in offshore zones) , as well as municipal tax on services in an amount that depends on the type of services and the place of their provision.
Payments of royalties to controlling companies located abroad are subject to taxation at a rate of 15% of income tax and 10% of special federal CIDE tax (not charged if there is an agreement on avoidance of double taxation). Regulation of labor relations in Brazil is quite complicated.
Before a foreign investor starts working and hiring personnel in Brazil, he must do the following:
- register a company with the Brazilian Ministry of Labor and Employment;
- register a company with the Mandatory Lifetime Guarantee Fund (Fundo de Garantia do Tempo de Serviço – FGTS, provides support for laid-off employees without a “fair cause”) to pay the mandatory contributions payable to employees in case of dismissal;
- register a company at the National Institute of Social Insurance (Instituto Nacional do Seguro Social – INSS) for payment by the organization itself and employees of contributions to the Social Insurance Fund.
As in a number of other countries, Brazilian labor legislation is highly aimed at protecting the interests of workers. Regardless of the type of activity of the company or its affiliation to any country, all employers in Brazil are obliged to provide employees with the following:
- annual 13th salary, the payment of which can be divided into two successive payments as follows: half in the period between the beginning of February and the last day of November, the second part by December 20;
- 30-day paid leave with payment of one third of the amount of the employee’s salary;
- 8-hour work week with the possibility of additional employment at work no more than 2 hours per day, but not more than 44 hours per week;
- overtime working time is paid in the amount of one and a half pay;
- reducing the duration of work at night (52 and a half minutes equal to one hour of work);
- the work of night shifts should be carried out in the period from 20.00 to 06.00;
- wage premiums for working conditions dangerous to health or life are provided;
- pay weekly rest (Descanso Semanal Remunerado – DSR).
In addition to providing workers with these rights, companies are also required to comply with legal and health requirements, as well as comply with quotas for employees with disabilities and young professionals, pay all taxes, deductions and other mandatory wage payments. In addition, depending on the field of activity, other special requirements may be applied to companies depending on the type of its activity.
There are three levels of import regulation in Brazil:
- administrative (government of Brazil, whose responsibility includes issues of issuing import licenses, monitoring people’s health, ensuring quality control, etc.);
- customs (Brazilian Federal Tax Service);
- financial (Central Bank of Brazil).
All these types of regulation are combined into a single control computer system SISCOMEX.
Only Brazilian companies can get registered for import operations through the SISCOMEX system (also known as RADAR certification) used for registering participants in international trade transactions. In this regard, if a foreign agent plans to import to Brazil, he must either establish a company in Brazil or become the legal successor of a Brazilian partner (or commercial company) in order to be represented in the procedure for working with imports.
The issuance of import licenses is a type of administrative control. In Brazil, there are two types of import licenses:
- automatic license (issued for most products imported to Brazil);
- non-automatic license. In the case of a non-automatic license, a permit must be obtained from the Brazilian public authority, which is determined depending on the type of product, for example, the Agency for Health Supervision (ANVISA), the Brazilian Telecommunications Agency (ANATEL), the Brazilian Environmental Agency (IBAMA), National Petroleum Industry Agency of Brazil (ANP).